Question

In: Statistics and Probability

Please show steps using LINDO! Spencer Enterprises is attempting to choose among a series of new...

Please show steps using LINDO!

Spencer Enterprises is attempting to choose among a series of new investment alternatives. The potential investment alternatives, the net present value of the future stream of returns, the capital requirements, and the available capital funds over the next three years are summarized as follows:

Capital Requirements ($)

Alternative

Net Present Value ($)

Year 1

Year 2

Year 3

Limited warehouse expansion

4,000

3,000

1,000

4,000

Extensive warehouse expansion

6,000

2,500

3,500

3,500

Test market new product

10,500

6,000

4,000

5,000

Advertising campaign

4,000

2,000

1,500

1,800

Basic research

8,000

5,000

1,000

4,000

Purchase new equipment

3,000

1,000

500

900

Capital funds available

10,500

7,000

8,750

a. Develop and solve an integer programming model for maximizing the net present value.

b. Assume that only one of the warehouse expansion projects can be implemented. Modify your model from part a.

c. Suppose that if test marketing of the new product is carried out, the advertising campaign also must be conducted. Modify your formulation from part b to reflect this new situation.

Solutions

Expert Solution

ANSWER:

Given that,

NPV=17500


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